The mortgage battlefield: why customers switch banks (and how to win them back)
Australia’s housing market is immense and ever-growing, but it’s also more competitive than ever. Of the estimated 3.9 million owner-occupied mortgages across the country, 541,000 of them are in motion (opened or refinanced to a different bank) every year.
These customers, uncovered by Deloitte research in 2021, reveal the mortgage battlefield for banks.
We wanted to find out where these customers are coming from, where they go and, most importantly, why they leave and what they want from their new provider. As part of our research, we examined Australians who had either opened a new mortgage or switched their mortgage provider in the past three years, or were actively considering switching in the coming months.
The research offers detailed insights into how banks can defend market share and grow by attracting new customers. It’s also a crucial data set for Deloitte’s Acquisition.AI, a cutting-edge toolset which uses AI modelling and more than 4,000 data points including demographics, financial product holdings, household spend and lifestyle indicators, to help banks target their next best new customers.
On the move
The 541,000 mortgages in motion every year make up 13.7% of the estimated 3.9 million total owner-occupied mortgages in Australia. Over the past three years, 57% of these customers had switched their mortgage by moving home or refinancing (switchers), while 43% had opened a new mortgage account (openers).
Deloitte Acquisition.AI ‘Switchers Study Dec 2021’
It’s no surprise the Big Four dominate the market with a collective 70% share, followed by Tier 2 banks (19%) and others (11%). Most banks had an equal or greater share of openers than switchers, though some – such as ING, Macquarie, Westpac and ANZ – captured more switchers than openers.
Source: Deloitte Acquisition.AI ‘Switchers Study Dec 2021’
For the purposes of this survey, subsidiaries have been grouped by their master group brand name: Bank of Queensland (Members Equity Bank), Bendigo Adelaide Bank (UpBank), Commonwealth Bank (Aussie Home Loans, Bankwest), NAB (86400, Advantedge, Citibank, UBank), Westpac (Bank of Melbourne, Rams, St George).
Switchers are respondents who changed their primary residence mortgage in the past 3 years, openers have opened their first primary residence mortgage in the past 3 years (December 2021).
Interestingly, switchers showed no loyalty to their current bank type – Big Four, Tier 2 or other. The data showed significant movement between banks of all sizes, showing customers were willing to cast a wide net in their search for an alternative.
We asked switchers for up to three reasons why they left their mortgage provider. Interest rate (65%) was the most common response, followed by fees (34%) and account features (22%). Delving further painted a clearer picture of why customers are choosing to leave their bank.
Source: Deloitte Acquisition.AI ‘Switchers Study Dec 2021’
Switchers are respondents who changed their primary residence mortgage in the past 3 years, openers have opened their first primary residence mortgage in the past 3 years (December 2021).
Of those who cited interest rates as a reason they left their mortgage provider, the majority were concerned with how their bank’s rate compared with the market. This was more common for customers of ‘other’ banks than those of Tier 2 banks or the Big Four, suggesting larger banks are either more competitive with their interest rates or their customers are more likely to leave for other reasons.
Source: Deloitte Acquisition.AI ‘Switchers Study Dec 2021
’“Total” refers to all respondents who switched primary mortgage in the last 3 years from any bank. Respondents identified which bank switched from, and these banks were categorised as Big4, Tier2 and Other. I.e. Tier2 refers to customers who switched primary mortgage in the past 3 years, and their previous bank was a Tier2 bank.
More Big Four customers identified fees charged than those from Tier 2 banks and others, which may reflect the availability of low or no fee products from smaller banks. Under this umbrella, annual fees were the most common type of fee to drive customers away.
Source: Deloitte Acquisition.AI ‘Switchers Study Dec 2021
’“Total” refers to all respondents who switched primary mortgage in the last 3 years from any bank. Respondents identified which bank switched from, and these banks were categorised as Big4, Tier2 and Other. I.e. Tier2 refers to customers who switched primary mortgage in the past 3 years, and their previous bank was a Tier2 bank.
We also asked respondents to tell us the banks (top 3) they were ‘aware’ of and ‘considering’ when they opened or switched their mortgage. The results for the Big Four show differing performance in conversion of acquisition opportunities. CommBank has the highest awareness, consideration and conversion rates. Whilst Westpac is a close second in awareness and consideration, they don’t hold that position as strongly when it comes to conversion.
Source: Deloitte Acquisition.AI ‘Switchers Study Dec 2021’
Respondents were asked to list the top 3 banks that they were aware of, top 3 banks they were actively considering, and the switchers/openers were asked to list the final bank that they selected. Respondents’ location was identified by ABS remoteness categorisation where major cities include “Major Urban / Other Urban” classification.
What this means for customer acquisition
Our research shows high turnover among Australian mortgage holders. It sets a challenge for banks to consider how they can defend market share while attracting new customers. Key factors like account features and annual fees are driving customer churn – with at least one in three leaving due to something other than interest rates.
Banks have the opportunity to drive acquisition through direct channels, creating higher quality leads, moving the conversation away from brokers and winning more loyal customers. They can also start targeting the right customers among these 541,000 mortgages – those most relevant to their banking proposition. From lower account fees to a better digital experience, it’s the chance to talk to customers about what matters to them and responding with a targeted marketing strategy.
